Mutual fund and insurance selling

Mutual Funds & Other Financial Products

Basics of Investments:

Risk AversionRisk Management

Bank Deposits, PPF, NSC, Insurance,

Kisan Vikas Patra etc.Mutual Funds

Low Risk/Low ReturnManaged Risk/High Return

Myths about Mutual Funds1. Mutual Funds invest only in shares.

2. Mutual Funds are prone to very high risks/actively traded .

3. Mutual Funds are very new in the financial market.

4. Mutual Funds are not reliable and people rarely invest in them.

5. The good thing about Mutual Funds is that you don’t have to pay attention to them.

Facts about Mutual Funds1. Equity Instruments like shares form only a part of

the securities held by mutual funds. Mutual funds also invest in debt securities

2. The biggest advantage of Mutual Funds is their ability to diversify the risk.

3. Mutual Funds are the best solution for people who want to manage risks and get good returns.

4 The truth is as an investor you should always pay attention to your mutual funds and continuously monitor them. There are various funds, both as a long term investment vehicle or as a very short term cash management vehicle.

What is mutual fund ?• A mutual fund is a common pool of money into which

investors place their contributions that are to be invested in different types of securities in accordance with the stated objective.

• While instruments like shares give high returns at the cost of high risk, instruments like NSC and bank deposits give lower returns and higher safety to the investor.

• Mutual Funds aim to strike a balance between risk and

return and give the best of both to the investor.

Mutual FundsOperations Flow Chart

(Reference: amfiindia.com)

Advantages of Mutual Funds• Portfolio diversification: It enables him to hold a diversified investment portfolio even with a small amount of investment like Rs. 2000/-.

• Professional management: The investment management skills, along with the needed research into available investment options, ensure a much better return as compared to what an investor can manage on his own.

• Reduction/Diversification of Risks: The potential losses are also shared with other investors.

• Reduction of transaction costs: The investor has the benefit of economies of scale; the funds pay lesser costs because of larger volumes and it is passed on to the investors.

• Wide Choice to suit risk-return profile: Investors can chose the fund based on their risk tolerance and expected returns.

Mutual Funds Vs. Other Investments

Product Return Safety Liquidity Tax Benefit Conven-

ience

Bank Deposit Low High High No High

Equity Instruments

High Low High or Low No Moderate

Debentures Moderate Moderate Low No Low

Fixed Deposits by Companies

Moderate Low Low No Moderate

Bonds Moderate Moderate Moderate Yes Moderate



ience

RBI Relief Bonds

Moderate High Low Yes Moderate

PPF Moderate High Low Yes Moderate

National Saving Certificate


National Saving Scheme


Monthly Income Scheme




ience

Life Insurance Moderate High Low Yes Moderate

Mutual Funds (Open-end)

Moderate Moderate High No High

Mutual Funds

(Closed-end)

Moderate Moderate High Yes High

Mutual Fund TypesMoney Market Funds/Cash Funds• Invest in securities of short term nature I.e. less than one year maturity.• Invest in Treasury bills issued by government, Certificates of deposit issued by banks, Commercial Paper issued companies and inter-bank call money.• Aim to provide easy liquidity, preservation of capital and moderate income.

Gilt Funds• Invest in Gilts which are government securities with medium to long term maturities, typically over one year. • Gilt funds invest in government paper called dated securities.• Virtually zero risk of default as it is backed by the Government.• It is most sensitive to market interest rates. The price falls when the interest rates goes up and vice-versa.

Debt FundsDebt Funds/Income Funds• Invest in debt instruments issued not only by government, but also by private companies, banks and financial institutions and other entities such as infrastructure companies/utilities.• Target low risk and stable income for the investor.• Have higher price fluctuation as compared to money market funds due to interest rate fluctuation.• Have a higher risk of default by borrowers as compared to Gilt funds. • Debt funds can be categorized further based on their risk profiles.• Carry both credit risk and interest rate risks.

Equity FundsEquity Funds:• Invest a major portion of their corpus in equity shares issued by companies, acquired directly in initial public offering or through secondary market and keep a part in cash to take care of redemptions. • Risk is higher than debt funds but offer very high growth potential for the capital.• Equity funds can be further categorized based on their investment strategy. • Equity funds must have a long-term objective.

Hybrid FundsBalanced Funds:• Has a portfolio comprising of debt instruments, convertible securities, preference and equity shares.• Almost equal proportion of debt/money market securities and equities. Normally funds maintain a Equity-Debt ratio of 55:45 or 60:40.• Objective is to gain income, moderate capital appreciation and preservation of capital.• Ideal for investors with a conservative and long-term orientation.

Fund StructureFund Sponsor

Trustees

Asset Management Company

Depository

Custodian

Agent

Mutual Fund Types• Broad fund types by Nature of Investments: Mutual funds may invest in equities, bonds or fixed income securities, or short-term money market securities. So, we have Equity, Bond and Money Market Funds.

• Broad fund types by Investment Objective: Investors and hence mutual funds pursue different objectives while investing.

- Growth funds invest for medium to long term capital appreciation.

- Income funds invest to generate regular income and preservation of capital with little emphasis on capital appreciation.-Value funds invest in equities that are considered under-valued today, whose value will be unlocked in future.

• Broad fund types by Risk Profile: Fund’s portfolio and its investment objective imply different risk levels. Equity funds have a greater risk of capital loss than a debt fund. Money Market funds are exposed to lesser risk than Bond funds.

Debt FundsDiversified Debt Funds: • Invests in all available types of debt securities, issued by entities across all industries and sectors.• Derives benefit of risk reduction through risk diversification.

Focused Debt Funds:• Have a narrow focus with less diversification in its investments.• Include Sector, Specialized and Offshore debt funds.• Have a higher risk as compared to diversified debt funds.

High Yield Debt Funds:• Invest in debt instruments that are not backed by tangible assets and considered “below investment grade”. • May earn higher returns though at the cost of higher risk.

Debt FundsAssured Return Funds- An Indian Variant: • Assured Return or Guaranteed Monthly Income Plans are essentially Debt/Income funds.• Returns are indicated in advance for all the future years of the closed-end funds.• Any shortfall is borne by the sponsors or managers.• Market regulator, SEBI has been discouraging fund managers from offering assured return schemes. If offered, explicit guarantee is required from a guarantor whose name is specified in advance in the offer document of the scheme.

Equity FundsAggressive Growth Funds• Objective is to earn very high returns for the investor. • Target is maximum capital appreciation.• Invest in less researched or speculative shares and may adopt speculative investment strategies.• High volatility and risk as compared to other funds.

Growth Funds:• Objective is capital appreciation over a long time, 7 - 10 years span.• Invest in companies whose earnings are expected to rise at an above average rate.• These companies will be considered to have growth potential, but not entirely unproven and speculative.• Less volatile than aggressive growth funds.

Equity FundsSpecialty Funds• Thematic funds that have a theme for investments.• Narrow portfolio orientation and invest only in companies that meet pre-defined criteria. • Diversification is limited to one type of investment.• More volatile than diversified funds.• Specialty funds are further sub-categorized based on their investments.

Diversified Equity Funds:• Invest only in equities except for a very small portion in liquid money market securities.• It is not focused on any one or few sectors or shares.• Reduce the sector or stock specific risks through diversification.• Lower risks than growth funds.

Equity (Specialty) FundsSector Funds:• Portfolios consists of investments in only in one industry or sector of the market such as IT, Pharmaceuticals or FMCG.• Higher level of company or sector specific risk than diversified funds.

Offshore Funds:• Invest in equities in one or more foreign countries.• Sensitive to foreign exchange rate risk and economic conditions of the countries they invest in.

Small-Cap Equity Funds:• Invest in shares of companies with relatively low market capitalization that that of big blue chip companies.• More volatile than other funds as smaller companies are not very liquid.• In terms of investment style, it may be aggressive-growth or growth type or even value fund.

Equity FundsEquity Linked Savings Schemes - an Indian Variant:• Investment in these schemes entitles the investor to claim an income tax rebate.• Usually has a lock-in period of 3 years before the end of which funds cannot be withdrawn.• There are no specific restrictions on the investment objectives for the fund managers.• Generally, such funds would be Diversified Equity Funds.

Equity Income Funds:• Objective is to give high level of current income along with some steady capital appreciation.• Invest in shares of companies with high dividend yields and do not fluctuate as much as other shares. Ex - Power/Utility sector.• Less volatile and risky than other equity funds.

Equity FundsEquity Index Funds:• The objective is to match the performance of the stock market by tracking an index that represents the overall market.• Invests in shares that constitute the index and in the same proportion.• Sensitive to overall market risk.• Example: UTI Nifty Fund

Value Funds:• Invest in fundamentally sound companies whose shares are currently under-priced in the market.• Have lower risk as compared to Growth Funds and take a long term approach.• Often invested in cyclical industries.• Example: Templeton India Growth fund that has shares of Cement/Aluminum and other cyclical industries.

Hybrid FundsGrowth & Income Funds:• Strike a balance between capital appreciation and income for the investor.• Portfolio is a mix between companies with good dividend paying records and those with potential for capital appreciation.• Less risky than growth funds but more risky than income funds.

Asset Allocation Funds:• Follow variable asset allocation policy.• Move in an out of an asset class (equity, debt, money market or even non-financial assets)• Asset allocation funds that follow more stable allocation policies are like balanced funds.• Asset allocation funds that follow more flexible allocation policies are like aggressive growth or speculative funds.

Investment PlansAutomatic Re-investment PlansAllows the investor to re-invest in additional units the amount of dividends or other distributions made by the fund instead of receiving it in cash. Investment takes place at ex-dividend NAV. The investors reap the benefit of compounding his investments.

Automatic Investment Plans Allows the investor to invest a fixed sum periodically. Enables him to save in a disciplined and phased manner. Such funds help in ‘rupee cost averaging’. Mode of investment could be through direct debit to investor’s salary or bank account. Voluntary Accumulation Plan, a modified version of AIP allows the investor flexibility in terms of amount and frequency of investment.

Investment PlansSystematic Withdrawal Plans Allow systematic withdrawals from his fund investment on a periodic basis. The investor must withdraw a specific minimum amount and also maintain a minimum balance in his fund account. The amount withdrawn is treated as redemption of units at the applicable NAV as specified in the Offer Document. SWPs are different from MIPs. SWPs allows investors to get back the principal amount invested while MIP’s will only pay the income part on regular basis.

Systematic Transfer Plans Allow the investor to transfer on a periodic basis from one scheme to another within the same fund family. A transfer will be treated as redemption of units from one scheme and investment of units in another scheme. Such redemption and investment will be at applicable NAV as mentioned

in the Offer Document.

Financial products selling

Risk Aversion

Bank Deposits, PPF, NSC, Insurance,

Kisan Vikas Patra etc

Low Risk/Low Return

Insurance Selling

Objectives

•Using Marketing Agency as a driver towards creating awareness among potential customers.

•Strategies for Insurance Selling which result in high sales.

Choosing a Advertising Agency

• Used to create a positive impact.

• Branded marketing agents verses Non-branded marketing agents.

• Emphasis on proper information to potential customers.

• Right Marketing Agency leads to High Profitability.

Insurance Selling

Introduction

a) Present scenario- Red Ocean.

b) Reasons for marketing insurance w.r.t Life Insurance.

Strategies for Selling Insurance

• Familiarisation of company name.• Telephone Marketing.• Insurance policy holder feedback &

information.• Community Insurance.• No partial treatment in terms of cost.• Faster processing of Insurance claim.• Customer relations to be maintained.• Honest and unified approach.

Bank Deposits

Types

• Savings Bank Account.

• Current Deposit Account.

• Fixed Deposit Account.

• Recurring Deposit Account.

Public Provident Fund (PPF)

Pros Cons

1) Lowest Risk Possible 1) Interest rates change. (12% to 8%)

2) Tax Rebate (20% under Section 88) 2) Lengthy lock-in period. (15 yrs/16)

3) Great Returns (8% compounded) 3) Interest calculated on lowest balance. (5th to last date)

4) No tax on interest (sec 10(11) income tax)

4) Lack of Liquidity.

5) Flexibility of Investment. (max Rs.60k, min Rs. 500)

6) Exempt from wealth tax

Features:

1) Rate of Interest 8% compounded Annually. 2) Minimum deposit is 500/- & Max Rs. 70,000/- in a financial year.

National Savings Certificate.

Features:

• Minimum investment Rs. 500/-, no maximum limit.

• Rate of interest 8% compounded.

• Rs. 1000/- grow to 1601/- in 6 years.

• 2 adults, individuals and minor through guardian can purchase.

• Can be pledged as security for loan.

Senior citizen’s savings scheme

• Interest rate down from 13% to 5%.

• Makes life miserable.

• Stable interest rates from 2004-05.

• Introduction of Senior citizen’s savings scheme 2004 with higher rate of interest.

• Objective is to bring relief and stability in interest rates.

Post office savings bank.

• Minimum amount Rs20/- in case of non- cheque account, Rs.500/- in case of cheque account.

• Minimum balance of Rs.500/- is to be maintained for a cheque account.

• Account is opened with cash only. • Maximum balance permissible Rs. 1,00,000/- in a single

account and 2,00,000/- in Joint account. • Two/Three adults, individuals, minor through guardian. • A Minor having 10 years of age can also open an

account directly. • One individual account and one joint account can only

be opened at a post office.

Selling of Financial Products

Strategies:• Using Referral Services.• Direct mailing.• Cold Calling• Offering items having Brand Identity.• Using Media.• Celebrity endorsements.• Sponsoring events.• Email Marketing.

Thank-you

Business

Mutual fund and insurance selling